The economic history of the United States has its roots in European colonisation in the 16th, 17th, and 18th centuries. Marginal colonial economies grew into 13 small, independent farming economies, which joined together in 1776 to form the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal, iron, and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world. Technological and industrial factors played a major role.
Pre-colonial
While they traded among themselves, Native Americans had little contact outside the Americas before European settlers began arriving. Their economic systems, for example the economy of the Iroquois, involved various combinations of hunting and gathering and agriculture. Native American economies were profoundly altered by the arrival of Europeans and the resulting arrival of new diseases, influx of European goods, business relations with the Europeans regarding the fur trade, acquisition of firearms, engagement in wars, loss of land, and confinement to reservations.
In 1492, Christopher Columbus, sailing under the Spanish flag, set out to find Asia and happened upon a "New World." For the next 100 years, English, Spanish, Portuguese, Dutch, and French explorers sailed from Europe for the New World, looking for gold, riches, religious merit, honor, and glory. But the North American wilderness offered early explorers little glory and less gold, so most did not stay. The people who eventually did settle North America arrived later. In 1565 St. Augustine, Florida, was founded by the Spanish, and in 1607 a small band of settlers built England's first permanent settlement in what was to become the United States at Jamestown, Virginia.
Colonial era
Early settlers had a variety of reasons for coming to America. The Puritans of Massachusetts wanted to create a purified religion in New England. Other colonies, such as Virginia, were founded principally as business ventures. England's success at colonizing what would become the United States was due in large part to its use of charter companies. Charter companies were groups of stockholders (usually merchants and wealthy landowners) who sought personal economic gain and, perhaps, wanted also to advance England's national goals. While the private sector financed the companies, the King provided each project with a charter or grant conferring economic rights as well as political and judicial authority. The colonies generally did not show quick profits, however, and the English investors often turned over their colonial charters to the settlers. The political implications, although not realized at the time, were enormous. The colonists were left to build their own lives, their own communities, and their own economy.
What early colonial prosperity there was resulted from trapping and trading in furs. But throughout the colonies, people lived primarily on small farms and were self-sufficient. In the few small cities and among the larger plantations of South Carolina, and Virginia, some necessities and virtually all luxuries were imported in return for tobacco, rice, and indigo exports.
Supportive industries developed as the colonies grew. A variety of specialized sawmills, and gristmills appeared. Colonists established shipyards to build fishing fleets and, in time, trading vessels. They also built small iron forges. By the 18th century, regional patterns of development had become clear: the New England colonies relied on shipbuilding and sailing to generate wealth; plantations (many using slave labor) in Maryland, Virginia, and the Carolinas grew tobacco, rice, and indigo; and the middle colonies of New York, Pennsylvania, New Jersey, and Delaware shipped general crops and furs. Except for slaves, standards of living were generally high—higher, in fact, than in England itself. Because English investors had withdrawn, the field was open to entrepreneurs among the colonists.
By 1770, the North American colonies were ready, both economically and politically, to become part of the emerging self-government movement that had dominated English politics since the time of James I (1603–1625). Disputes developed with England over taxation and other matters; Americans in the Thirteen Colonies demanded their rights as Englishmen, as they saw it, to select their own representatives to govern and tax them - which Britain refused. The dispute led to the American Revolution, resulting in an all-out war against the British and to eventual political independence and sovereignty for the new United States of America.
Like the English political turmoil of the 17th and 18th centuries, the American Revolution (1775–1783) was both political and economic, bolstered by an emerging middle class with a rallying cry of "unalienable rights to life, liberty, and property"—a phrase openly borrowed from English philosopher John Locke's Second Treatise on Civil Government (1690). While political separation from England may not have been the majority of colonists' original goal, independence and the creation of a new sovereign nation—the United States—was the ultimate result. It was a prosperous time.
New nation
The U.S. Constitution, adopted in 1787, established that the entire nation was a unified, or common market, with no internal tariffs or taxes on interstate commerce. The extent of federal power was much debated, with Alexander Hamilton taking a very broad view as the first secretary of the treasury. He succeeded in building a strong national credit based on a national debt held by the wealthy and political classes (who would then have an interest in keeping the government in healthy condition), and funded by tariffs on imported goods. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing, and banking. He proposed measures like protective tariff to pay the costs of government, along with a tax on whiskey that western farmers strongly resented. He sought and achieved Congressional authority to create the First Bank of the United States in 1791; the charter lasted until 1811.
Thomas Jefferson and James Madison opposed a strong central government (and, consequently, most of Hamilton's economic policies), but they could not stop Hamilton, who wielded immense power and political clout in the Washington administration. In 1801, however, Jefferson became president and turned to promoting a more decentralized, agrarian democracy called Jeffersonian democracy. (He based his philosophy on protecting the common man from political and economic tyranny. He particularly praised small farmers as "the most valuable citizens.") As president after Jefferson, James Madison let the bank charter expire in 1811, but the War of 1812 proved the need for a national bank and Madison reversed positions. The Second Bank of the United States was established in 1816, with a 20 year charter.
Expansion and growth
Cotton, at first a small-scale crop in the South, boomed following Eli Whitney's invention in 1793 of the cotton gin, a machine that separated raw cotton from seeds and other waste. Soon, large plantations, based on slave labor, expanded in the richest lands from the Carolinas westward to Texas.
Millions moved to the more fertile farmland of the Midwest. Government-created national roads and waterways, such as the Cumberland Pike (1818) and the Erie Canal (1825), helped new settlers migrate west and helped move western farm produce to market. The Whig Party supported Clay's American System, which proposed to build internal improvements (roads, canals, harbors) protect industry, and create a strong national bank. The Whig legislation program was blocked by the Democrats, however.
President Andrew Jackson (1829–1837) opposed the Second National Bank, which he believed favored the entrenched interests of his enemies. When he was elected for a second term, Jackson opposed renewing the bank's charter, and Congress supported him. Jackson opposed paper money and demanded the government be paid in gold and silver coins. The Panic of 1837 stopped business growth for three years.
Railroads made a decisive impact on the U.S. economy, making possible the transition to an urban industrial nation with high finance and advanced managerial skills. Were railroads "indispensable" or not? Everyone agrees they were very important in reality but what if they never existed? Robert Fogel argued that an alternative existed—a theoretical network of canals that were never built. C
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